One year ago….
It started with a trickle of failed subprime loans and without warning, the dam broke unleashing a torrent of failed mortgages and foreclosures. Last year, at this time, the mortgage markets were frozen, housing values were plummeting, the stock market was in free fall, Lehman Brothers crashed and burned and the Financial infrastructure of the United States was tottering on the brink of complete collapse. Bernie Madoff made off with a billion or more dollars of his client’s money and scheme after fraudulent scheme came into the limelight. There was no way to escape the media coverage. Foreclosures, bank failures, 401k’s turned to 201k’s, investment scams and the impending Next Great Depression were the story of the minute, the hour, the day, the week; relentlessly pounding us with wave after wave of devastating news. It just plain put everyone in a blue funk.
What a difference a year makes! The Cavalry arrived in the unlikely form of acronyms like TARP, HARP and HERA.
TARP(Troubled Asset Relief Program) is a $700Billion initiative that was supposed to purchase toxic assets(translation-foolishly underwritten failed mortgages) so that lender’s balance sheets would improve sufficiently to provide liquidity to the markets.
In short, it was meant to keep the banks from seizing up for fear of making bad loans while they had an unknown quantity of bad loans already on the books. It was soon determined that this was a bad use of the funds. So, the government(that would be you and me) decided to use our dollars to shore up the banks directly by buying shares in the biggest banks and then telling them what to do with their money. Most CEO’s of large banks did not like being told what to do and many gave back the money. So, eventually, we got around to using the money to make a market of cheap mortgage money so that everybody could refinance or purchase to a very affordable house payment; we went to main street with main street’s money. Imagine that. And…it’s working. 201k’s are now back to 301k’s, the stock market has regained some strength, the housing market is stabilizing, and Bernie, Tom and a bunch of others are in jail.
The next chapter will be bumpy….
The government has been providing almost all of the money to purchase mortgages for the past year, driving rates to historic lows. They are about to stop doing that because the money is running out. They have started to transition the mortgage market back to the private sector(expected to be complete by March 2010) and the private sector doesn’t think it’s a smart idea to loan money out for 30 years at these really low rates when they know that printing money is likely the only way out of the deficit that has been created. When that happens, the dollar is worth less(worthless?) and it will take more dollars to buy something. That’s inflation. Inflation is bad. If a loaf of bread costs $1 now and it costs $2 next year, but you aren’t making any more money, then you don’t get to buy as much bread. People on fixed incomes really lose in a scenario of high inflation. That would be the worker that gets a small raise each year and the elderly who are trying to live on Social Security or fixed incomes from pensions. So, if your buyer or seller has been waiting, use this to help them understand that the best opportunity of a lifetime to lock in an affordable payment, make that move, get off the fence, is right now. It could be a VERY long time before we see anything like the rates that are available today. Locking in on a fixed rate mortgage for 15, 20, 25, or 30 years is a HUGE inflation fighter. You may have to pay more for a loaf of bread but you’ll never pay more for your house payment.
Waiting to sell and buy until values go back to the peak? If you can wait until 2023, go ahead. That’s when values are predicted to return to peak levels in Minnesota. Otherwise, get going right now.
If values were to climb 5% over the next year, giving a seller more cash to put down, they would still have a higher payment due to the rates increasing.
The Home Buyer Credit of $8,000 will most likely be extended until June. This week, I learned from statistics gathered by the Minnesota Home Ownership Center that the average buyer this year is taking 11 months to make a buying decision, talking to 7 Realtors and 3 Lenders. To take advantage of this incredible bubble of opportunity, everyone is going to have to pick up the pace. In the Minneapolis Metro area there is less than a 5 month supply of homes in the 0-$250K range and that has caused prices to increase in this range by nearly 6% in the past 2 months. It’s provided a perfect opportunity for sellers with houses in this price range who want to move up a step. Values for move up houses are still lagging the market and are priced at close to 30% less than they were just 3 years ago. Make no mistake. The Homebuyer Credit is providing the impetus for this pocket of opportunity. In the months of July and August, Minnesota saw a record number of new Sheriff Sales and that means that by spring, sellers will be competing with a glut of new foreclosed properties, and higher interest rates.
I sure hope this helps you help someone make a buying or selling decision.
I’d love to know if this helps you help someone. Shoot me an e-mail at barbarac@fairwaymc.com and let me know if this helped you. - Barb Crea
PS. The window of opportunity on HARP and HAMP is narrowing as well. The Home Affordable Refinance and Home Affordable Modification Programs are also driven by rates. Right now, the ceiling has been raised to allow people who are at a 125% LTV refinance under the HARP program. HAMP has ramped up and under pressure from Washington, more and more people are getting their loans modified. So, if you know someone who is underwater, who tried last spring and failed, tell them to try again. In the spring, we were stuck with 95% LTV’s, then it was raised to 105% and now it’s 125%. The counselors have gotten a lot better at their jobs. Your clients will appreciate the help. The best place to get that help is still www.hopenow.com or have them call us and we’ll try to get them to the right place.
If you need help or someone you know would like to sell or buy contact me. madonna@seelhammer.com
or call 651-450-2164
No comments:
Post a Comment